Natcan Investment Management Inc. - MRRS Decision
Headnote
Mutual Reliance Review System for Exemptive Relief Applications -- Exemption to allow dealer managed mutual funds to invest in securities of an issuer during the distribution period and the 60 days after the distribution period in which an affiliate of the dealer manager has acted as an underwriter in connection with the distribution of securities of the issuer - the conflict is mitigated by the oversight of an independent review committee - Subsection 4.1(1) of National Instrument 81-102 Mutual Funds.
Applicable Legislative Provisions
National Instrument 81-102 Mutual Funds, ss. 4.1(1), 19.1.
May 10, 2007
(Translation)
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,
MANITOBA, ONTARIO, QUÉBEC, NEW BRUNSWICK,
NOVA SCOTIA, PRINCE EDWARD ISLAND,
NEWFOUNDLAND AND LABRADOR,
THE NORTHWEST TERRITORIES, NUNAVUT
AND THE YUKON
(the Jurisdictions)
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM (MRRS)
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
NATCAN INVESTMENT MANAGEMENT INC.
(the Applicant or Dealer Manager)
MRRS DECISION DOCUMENT
Background
The local securities regulatory authority or regulator (the Decision Maker) in each of the Jurisdictions has received an application from the Applicant, the manager or portfolio adviser or both of the mutual funds named in Appendix "A" (the Funds or Dealer Managed Funds) for a decision under section 19.1 of National Instrument 81-102 Mutual Funds (NI 81-102) for:
• an exemption from subsection 4.1(1) of NI 81-102 to enable the Dealer Managed Funds to invest in Trust Units (the Trust Units) of BTB Real Estate Investment Trust (the Issuer) during the period of distribution for the Offering (as defined below) (the Distribution) and during the 60-day period following the completion of the Distribution (the 60-Day Period) (the Distribution and the 60-Day Period together, the Prohibition Period), notwithstanding that an associate or affiliate of the Dealer Manager acts or has acted as an underwriter in connection with the offering (the Offering) of Trust Units on a best efforts basis by way of a private placement to accredited investors in all of the Jurisdictions and in the United States (the Requested Relief).
Under the Mutual Reliance Review System for Exemptive Relief Applications:
(a) the Autorité des Marchés Financiers (the AMF) is the principal regulator for this application, and
(b) this MRRS decision document evidences the decision of each Decision Maker.
It is the responsibility of each of the Decision Makers to make a global assessment of the risks involved in granting exemptive relief from subsection 4.1(1) of NI 81-102 in relation to the specific facts of each application.
Interpretation
Defined terms contained in National Instrument 14-101 Definitions have the same meanings in this decision unless they are defined in this decision.
Representations
This decision is based on the following facts represented by the Applicant:
1. The Dealer Manager is a "dealer manager" with respect to the Dealer Managed Funds, and each Dealer Managed Fund is a "dealer managed fund", as such terms are defined in section 1.1 of NI 81-102.
2. The head office of the Dealer Manager is located in Montréal, Québec.
3. The securities of the Dealer Managed Funds are qualified for distribution in one or more of the provinces and territories of Canada pursuant to simplified prospectuses that have been prepared and filed in accordance with their respective securities legislation.
4. As disclosed in a news release of the Issuer dated April 10, 2007, (the News Release), the Offering will be underwritten, subject to certain terms, by a syndicate that includes, among others, National Bank Financial Inc. (the Related Underwriter), an affiliate of he Dealer Manager (the Related Underwriter and any other underwriters which are now or may become part of the syndicate, the Underwriters).
5. As disclosed in the Issuer's undated term sheet in respect of the Offering (the Term Sheet), the Issuer is an open-ended real estate investment trust focused on acquiring and owning income-providing mid-market office, industrial and retail properties in both primary and secondary markets across Canada with an initial focus on geographic markets east of Ottawa, Ontario.
6. As described in a news release of the Issuer dated May 3, 2007, the Offering is expected to be comprised of Trust Units with maximum gross proceeds of up to CAD$40,000,000 and the Trust Units will be offered at a price of $2.55 per Trust Unit.
7. As described in the Term Sheet, the Offering is expected to close on or about May 15, 2007 (the Closing Date).
8. As described in the Term Sheet, the Issuer has granted the Underwriters an option, exercisable for a period of up to 30 days following the Closing Date, to purchase up to an additional 15% of the Offering at the Issue Price to cover over allotments, if any (the Over-Allotment Option).
9. As described in the Term Sheet, until 150 days after the Closing Date the Issuer shall not, directly or indirectly, sell, agree to sell or offer to sell, grant any option for the sale of, or otherwise dispose of any Trust Units or securities convertible into Trust Units without the prior written consent of Blackman Capital Inc., one of the Underwriters, other than (i) pursuant to the Offering, (ii) the issue of non-convertible debt securities, (iii) upon the exercise of convertible securities, options or warrants of the Issuer outstanding at the time of the Term Sheet or (iv) pursuant to the Issuer's unit option plan.
10. As disclosed in both the Term Sheet and the News Release, the proceeds of the Offering will be used by the Issuer to fund previously announced and future acquisitions of income-providing properties, working capital and general purposes.
11. As further disclosed in the News Release, Trust Units sold under the Offering will be subject to the approval of the TSX Venture Exchange (the TSXV). The Issuer's outstanding Trust Units are listed on the TSXV under the symbol "BTB.UN".
12. The Issuer is neither a "related issuer", nor a "connected issuer" as those terms are defined in National Instrument 33-105 -- Underwriting Conflicts.
13. Despite the affiliation between the Dealer Manager and the Related Underwriter, the Dealer Manager operates independently of the Related Underwriter. In particular, the investment banking and related dealer activities of the Related Underwriter and the investment portfolio management activities of the Dealer Manager are separated by "ethical" walls. Accordingly, no information flows from one to the other concerning their respective business operations or activities generally, except in the following or similar circumstances:
(a) in respect of compliance matters (for example, the Dealer Manager and the Related Underwriter may communicate to enable the Dealer Manager to maintain up to date restricted-issuer lists to ensure that the Dealer Manager complies with applicable securities laws); and
(b) the Dealer Manager and the Related Underwriter may share general market information such as discussion on general economic conditions, bank rates, etc.
14. The Dealer Managed Funds are not required or obligated to purchase any Trust Units during the Prohibition Period.
15. The Dealer Manager may cause the Dealer Managed Funds to invest in the Trust Units during the Prohibition Period. Any purchase of Trust Units by the Dealer Managed Funds will be consistent with the investment objectives of that Dealer Managed Fund and represent the business judgment of the Dealer Manager uninfluenced by considerations other than the best interests of the Dealer Managed Funds or in fact be in the best interests of the Dealer Managed Funds.
16. To the extent that the same portfolio manager or team of portfolio managers of the Dealer Manager manages two or more Dealer Managed Funds and other client accounts that are managed on a discretionary basis (the Managed Accounts), the Trust Units purchased for them will be allocated:
(a) in accordance with the allocation factors or criteria stated in the written policies or procedures put in place by the Dealer Manager for the Dealer Managed Funds and Managed Accounts, and
(b) taking into account the amount of cash available to each Dealer Managed Fund for investment.
17. Except as described above, the Dealer Manager has not been involved in the work of the Related Underwriter and the Related Underwriter has not been and will not be involved in the decisions of the Dealer Manager as to whether the Dealer Managed Funds will purchase Trust Units during the Prohibition Period.
18. There will be an independent committee (the Independent Committee) appointed in respect of each Dealer Managed Fund to review such Dealer Managed Fund's investments in the Trust Units during the Prohibition Period.
19. The Independent Committee will have at least three members and every member must be independent. A member of the Independent Committee is not independent if the member has a direct or indirect material relationship with the Dealer Manager, the Dealer Managed Funds, or any affiliate or associate thereof. For the purpose of this Decision, a material relationship means a relationship which could, in the view of a reasonable person, reasonably interfere with the exercise of the member's independent judgment regarding conflicts of interest facing the Dealer Manager.
20. The members of the Independent Committee will exercise their powers and discharge their duties honestly, in good faith, and in the best interests of investors in their respective Dealer Managed Funds and, in so doing, exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances.
21. The Dealer Manager, in respect of the Dealer Managed Funds, will notify a member of staff in the Investment Funds Branch of the AMF, in writing of any SEDAR Report (as defined below) filed on SEDAR, as soon as practicable after the filing of such a report, and the notice shall include the SEDAR project number of the SEDAR Report and the date on which it was filed.
Decision
Each of the Decision Makers has assessed the conflict of interest risks associated with granting an exemption in this instance from subsection 4.1(1) of NI 81-102 and is satisfied that, at the time this Decision is granted, the potential risks are sufficiently mitigated.
Each of the Decision Makers is satisfied that the test contained in NI 81-102 that provides the Decision Maker with the jurisdiction to make the Decision has been met.
The Decision of the Decision Makers is that the Requested Relief is granted, notwithstanding that the Related Underwriter acts or has acted as underwriter in the Offering provided the following conditions are satisfied:
1. At the time of each purchase of Trust Units (a Purchase) by a Dealer Managed Fund pursuant to this Decision, the following conditions are satisfied:
(a) the Purchase
(i) represents the business judgment of the Dealer Manager uninfluenced by considerations other than the best interests of the Dealer Managed Fund, or
(ii) is, in fact, in the best interests of the Dealer Managed Fund;
(b) the Purchase is consistent with, or is necessary to meet, the investment objective of the Dealer Managed Fund as disclosed in its simplified prospectus; and
(c) the Dealer Managed Fund does not place the order to purchase, on a principal or agency basis, with the Related Underwriter.
2. Prior to effecting any Purchase pursuant to this Decision, the Dealer Managed Fund has in place written policies or procedures to ensure that,
(a) there is compliance with the conditions of this Decision; and
(b) in connection with any Purchase,
(i) there are stated factors or criteria for allocating the Trust Units purchased for two or more Dealer Managed Funds and other Managed Accounts, and
(ii) there is full documentation of the reasons for any allocation to a Dealer Managed Fund or Managed Account that departs from the stated allocation factors or criteria.
3. The Dealer Manager does not accept solicitation by the Related Underwriter for the Purchase of Trust Units for the Dealer Managed Funds.
4. The Related Underwriter does not purchase Trust Units in the Offering for its own account except Trust Units sold by the Related Underwriter on closing.
5. Each Dealer Managed Fund has an Independent Committee to review the Dealer Managed Fund's investments in the Trust Units during the Prohibition Period.
6. The Independent Committee has a written mandate describing its duties and standard of care which, at a minimum, sets out the applicable conditions of this Decision.
7. The members of the Independent Committee exercise their powers and discharge their duties honestly, in good faith, and in the best interests of investors in the Dealer Managed Funds and, in so doing, exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances.
8. The Dealer Managed Funds do not relieve the members of the Independent Committee from liability for loss that arises out of a failure to satisfy the standard of care set out in paragraph VII above.
9. The Dealer Managed Funds do not incur the cost of any portion of liability insurance that insures a member of the Independent Committee for a liability for loss that arises out of a failure to satisfy the standard of care set out in paragraph VII above.
10. The cost of any indemnification or insurance coverage paid for by the Dealer Manager, any portfolio manager of the Dealer Managed Funds, or any associate or affiliate of the Dealer Manager or any portfolio manager of the Dealer Managed Funds to indemnify or insure the members of the Independent Committee in respect of a loss that arises out of a failure to satisfy the standard of care set out in paragraph VII above is not paid either directly or indirectly by the Dealer Managed Funds.
11. The Dealer Manager files a certified report on SEDAR (the SEDAR Report) in respect of each Dealer Managed Fund, no later than 30 days after the end of the Prohibition Period, that contains a certification by the Dealer Manager that contains:
(a) the following particulars of each Purchase:
(i) the number of Trust Units purchased by the Dealer Managed Funds;
(ii) the date of the Purchase and purchase price;
(iii) whether it is known whether any Underwriter or syndicate member has engaged in market stabilization activities in respect of the Trust Units;
(iv) if the Trust Units were purchased for two or more Dealer Managed Funds and other Managed Accounts of the Dealer Manager, the aggregate amount so purchased and the percentage of such aggregate amount that was allocated to each Dealer Managed Fund; and
(v) the dealer from whom the Dealer Managed Fund purchased the Trust Units and the fees or commissions, if any, paid by the Dealer Managed Fund in respect of such Purchase;
(b) a certification by the Dealer Manager that the Purchase:
(i) was made free from any influence by the Related Underwriter or any affiliate or associate thereof and without taking into account any consideration relevant to the Related Underwriter or any associate or affiliate thereof; and
(ii) represented the business judgment of the Dealer Manager uninfluenced by considerations other than the best interest of the Dealer Managed Funds, or
(iii) was, in fact, in the best interests of the Dealer Managed Funds;
(c) confirmation of the existence of the Independent Committee to review the Purchase of the Trust Units by the Dealer Managed Funds, the names of the members of the Independent Committee, the fact that they meet the independence requirements set forth in this Decision, and whether and how they were compensated for their review; and
(d) a certification by each member of the Independent Committee that after reasonable inquiry the member formed the opinion that the policies and procedures referred to in Condition II(a) above are adequate and effective to ensure compliance with this Decision and that the decision made on behalf of each Dealer Managed Fund by the Dealer Manager to purchase Trust Units for the Dealer Managed Fund and each Purchase by the Dealer Managed Fund:
(i) was made in compliance with the conditions of this Decision;
(ii) was made by the Dealer Manager free from any influence by the Related Underwriter or any affiliate or associate thereof and without taking into account any consideration relevant to the Related Underwriter or any associate or affiliate thereof; and
(iii) represented the business judgment of the Dealer Manager uninfluenced by considerations other than the best interests of the Dealer Managed Funds, or
(iv) was, in fact, in the best interests of the Dealer Managed Funds.
12. The Independent Committee advises the Decision Makers in writing of:
(a) any determination by it that the condition set out in paragraph XI(d) has not been satisfied with respect to any Purchase of the Trust Units by a Dealer Managed Fund;
(b) any determination by it that any other condition of this Decision has not been satisfied;
(c) any action it has taken or proposes to take following the determinations referred to above; and
(d) any action taken, or proposed to be taken, by the Dealer Manager or a portfolio manager of the Dealer Managed Funds, in response to the determinations referred to above.
13. For Purchases of Trust Units during the Distribution only, the Dealer Manager:
(a) expresses an interest to purchase on behalf of the Dealer Managed Funds and Managed Accounts a fixed number of Trust Units (the Fixed Number) to an Underwriter other than its Related Underwriter;
(b) agrees to purchase the Fixed Number or such lesser amount as has been allocated to the Dealer Manager no more than five (5) business days after the closing of the Offering;
(c) does not place an order with an underwriter of the Offering to purchase an additional number of Trust Units under the Offering prior to the completion of the Distribution, provided that if the Dealer Manager was allocated less than the Fixed Number at the time of the closing of the Offering for the purposes of the closing, the Dealer Manager may place an additional order for such number of additional Trust Units equal to the difference between the Fixed Number and the number of Trust Units allotted to the Dealer Manager at the time of the closing of the Offering in the event the Underwriters exercise the Over-Allotment Option; and
(i) does not sell Trust Units purchased by the Dealer Manager under the Offering, prior to the listing of Trust Units distributed under the Offering on the TSXV.
14. Each Purchase of Trust Units during the 60-Day Period is made on the TSXV.
15. For Purchases of Trust Units during the 60-Day Period only, an Underwriter provides to the Dealer Manager written confirmation that the "dealer restricted period" in respect of the Offering, as defined in OSC Rule 48-501, Trading During Distributions, Formal Bids and Share Exchange Transactions, has ended.
APPENDIX "A"
THE MUTUAL FUNDS
The Altamira Funds
Altamira Special Growth Fund
National Bank Mutual Funds - 2005
National Bank Small Capitalization Fund
National Bank Québec Growth Fund
National Bank Retirement Balanced Fund